Japan’s Nikkei Stock Index Finishes Year Above 50,000, Propped Up by AI and ‘Takaichi Trade’

By Yusuke Fukuhara and Itsuki Okuda / Yomiuri Shimbun Staff Writers

14:33 JST, December 31, 2025

The Nikkei Stock Average rose significantly in 2025, topping 50,000 for the first time thanks to an artificial intelligence boom and expectations for active fiscal policy from Prime Minister Sanae Takaichi’s Cabinet.

While some expect stock prices to continue to rise in 2026, there are also concerns, including diminished prospects for the AI boom and a possible slowdown in the U.S. economy.

In 2025, “domestic and overseas investors grew more hopeful about reform in Japan’s economy and companies,” said Hiromi Yamaji, CEO of Japan Exchange Group, Inc., which runs the Tokyo Stock Exchange, during a ceremony on Tuesday that marked the end of trading for the year.

The Nikkei average, which began 2025 above 35,000, fell to 31,136 on April 7 amid concerns about U.S. President Donald Trump’s tariffs. Stocks later recovered and the average passed 40,000 in June, buoyed by Japan’s progress in tariff talks with the United States.

Beginning around October, when the ruling Liberal Democratic Party held its presidential election, the “Takaichi trade” gained momentum, as investors grew bullish about the new prime minister’s fiscal policy.

On Oct. 27, the Nikkei hit an all-time closing high above 50,000, and days later on Oct. 31, it broke that record with another closing high of 52,411. The difference between the year’s high and low was around 20,000 points, underscoring the market’s fluctuations.

Solid corporate earnings

The stock market’s surge was underpinned by hopes for the AI boom. Global stock prices were pushed up by the expectation that generative AI will fundamentally transform the world’s economy and industries.

In the Tokyo market, three companies — SoftBank Group Corp., which has invested in the U.S.-based OpenAI, and chip industry firms Advantest Corp. and Tokyo Electron Ltd. — propelled the Nikkei index’s upward rise.

Stock prices also got a boost from solid corporate earnings. Initially, the market anticipated that high tariffs from the United States would undercut Japan’s export industries, and its auto industry in particular.

However, for the interim accounting period ending in September, about 300 companies, or 30% of the companies that disclosed their full-year forecast, revised their net profit forecast for the full year upward, outnumbering the 130 that revised downward.

The market was also supported by aggressive buying from individual investors amid a growing shift from savings to investments.

By September’s end, currency and deposits had fallen below 50% of households’ total financial assets for the first time in about 18 years, according to Bank of Japan statistics. Stocks and investment trusts accounted for a growing share of assets.

A weaker yen

In 2025, there was significant volatility in foreign exchange and bond markets.

The yen strengthened against the dollar, at one point falling below ¥140 per dollar in April due to dollar selling triggered by U.S. tariffs. Later, concerns about the government’s finances after the inauguration of the Takaichi Cabinet in October led to yen selling, causing the yen to depreciate to about ¥157 per dollar in November.

Concerns about government finances spread to the bond market as well. The yield on the benchmark 10-year government bond, a key indicator of long-term interest rates, rose to 2.1% on Dec. 22, which meant a decline in bond prices. This was the highest yield in 26 years and 10 months, or since February 1999. Gold, considered a safe-haven asset, saw higher demand amid declining confidence in the dollar and heightened geopolitical risks, with over-the-counter retail prices in Japan topping ¥25,000 per gram for the first time in December.

Stock prices have risen partly on expectations for artificial intelligence and other technologies, and some have pointed to risks ahead. Shoji Hirakawa, an analyst at Tokai Tokyo Intelligence Laboratory Co., said, “The AI bubble and heightened geopolitical risks, such as a possible Taiwan contingency, are causes for concern.”